Amending and Enforcing Law
Cyprus is making changes to its “Prevention and Suppression of Money Laundering Law” to impose fines on illegal crypto service providers (CSPs) in order to better regulate the cryptocurrency industry. The government is amending the law to comply with international standards set by the Financial Action Task Force (FATF) and recommendations made in the MONEYVAL report.
Mandatory Registration with CySEC for CSPs
The proposed amendment requires crypto asset trading firms, or CSPs, to register with the Cyprus Securities and Exchange Commission (CySEC), the nation’s financial authority. Failure to comply with this rule may result in fines of up to €350,000 and imprisonment for a maximum of five years. The government argues that these measures are necessary to reduce the risks of money laundering and terrorism financing.
Other countries such as Malta, France, and Ireland have also implemented strict regulations against unlicensed CSPs, imposing fines and imprisonment.
Cyprus Bar Association Raises Concerns
The Cyprus Bar Association has expressed concerns about the potential impact of these strict regulations on the country’s reputation as a business-friendly jurisdiction. While they acknowledge the importance of combating money laundering and terrorism financing, they believe that penalties should be proportionate and not discourage legitimate businesses from operating in Cyprus. The association has voiced opposition to the draft amendment, particularly questioning the need for CSPs registered in other EU member states to additionally register in Cyprus.
What is the ‘Travel Rule’?
The association has suggested implementing the “Travel Rule,” which would require CSPs to exchange customer and transaction information with authorities. The Finance Ministry argues that this rule aligns with how the EU’s single market operates and that CySEC has jurisdiction over CSPs offering services in Cyprus, regardless of their registration in other EU member states. The necessary amendments to Cyprus’ legal framework are being reviewed by the Parliamentary Committee on Legal Affairs and are expected to be approved soon.
Hot Take: Implementing the Travel Rule for Better Regulation
Once the “Travel Rule” is passed and implemented, it will enhance the regulatory framework for CSPs in Cyprus, ensuring greater transparency and accountability in financial transactions. This aligns with the EU’s efforts to combat money laundering and terrorist financing across member states.
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